It was a stop start year for residential property values with some flat periods due to uncertainty associated with the LVR speed limits, interest rate hikes and an election, along with periods of rapid value increases in some areas and decreasing values in others.
Overall the nationwide average shows residential property values increased 4.9% or $22,652 during 2014 from $466,022 in December 2013 to $488,674 in December 2014, according to the latest statistics by CoreLogic.
LVR Speed Limits and Sales Volumes
During 2014 house sales volumes continued to drop below the number seen in the same months of 2012 and 2013. Rather than necessarily being a direct result of the LVR speed limits, this was in fact a continuation of a downward trend that had started in early 2013.
Looking back a little further shows that sales volumes were much higher during the 2003 to 2007 boom. Volumes then dropped dramatically in 2008 during the GFC, recovered a little in 2009, before dropping again in 2010. During 2011 and 2012 sales began to slowly recover from the GFC lows but when they began to drop again in 2013 they had by no means recovered to normal levels.
A useful way to compare sales historically is to represent the number of sales as a percentage of the total housing stock at the time. During 2014 the turnover dropped, and reached a low of 0.43% in August, and apart from the GFC this was the lowest turnover since at least the early 1980’s when our records begin. So despite talk of rapidly increasing values it is worth bearing in mind that sales activity was still historically low. Yet economic conditions are positive and consumer confidence high so the low number of sales didn’t seem sustainable. Sure enough in the last few months of 2014 turnover picked up again, but is still historically low.
One more obvious impact of the LVR speed limits is the change in the type of buyers active in the market during 2014. Immediately following the introduction of the LVR limits the percentage of sales to first home buyers dropped from 20% to below 17%. But this gradually recovered during the year to end at around 18%. The number of sales to people owning more than one property (mostly investors) increased during the year from 37% to 41%. But perhaps the most obvious change was the drop in sales to people moving from one house to another. This dropped from 30% of the sales to under 25%. This drop in movers also happened in 2008 and again in 2010 as the GFC affected consumer confidence. For the property market to return to a more normal mix of buyers we would need to see this mover group becoming more active again.
The outlook for 2015
Our expectation is that sales turnover will remain buoyant in the first few months of 2015. However the lack of listings will continue to constrain the market. While there was a usual seasonal increase in new listings from August through to November, this dropped away in December as people waited until the New Year to list their properties. At the same time the increase in sales activity outstripped this new supply meaning that total listings once again dropped back. New listing activity typically picks up from about now on so that will help supply but if demand remains similar to late 2014 then it will not be enough.
Given strong migration, continuing low interest rates, a shortage of housing and good consumer confidence, values are likely to keep increasing in Auckland throughout this year. There may be modest increases in some of the other main centres, but most smaller centres are likely to remain steady.
The Reserve Bank has also stated that it is prepared to introduce further measures to slow down the market if necessary. Given that during the last three months of 2014 Auckland values rose faster than the previous boom, and some of the other main centres are also rising again, the Reserve Bank is likely to consider what action to take. This may include further restraints on bank lending given that interest rates are unlikely to rise until later this year.